Environmental Economics

By pure coincidence, I am the Founding President and Grand Poobah of the newly established National Center for the Valuation of Natural Capital at THE(tm) Ohio State University*

Thirty years ago, I proposed a dissertation topic to establish a set of national income accounts for Green National Income. It was rejected as too grand (and honestly, I had no idea what I was talking about at the time). Fast forward to news out of Davos yesterday:

President Joe Biden’s administration will launch an effort to more accurately count the nation’s natural resources in official economic statistics, saying the data are needed to give a true picture of US output.

This is the next big step in the evolution of the field environmental valuation, and a potential boon for recruiting PhD students to Universities that specialize in valuation (ahem).

*Not true, but I often (once?) tell people that TOSU has the largest collection of experts in environmental valuation at any University. I have no idea if that is true, but I've yet to be proven wrong. 

 

Some thoughts on equity and efficiency

I was recently looking back on some notes I wrote a while back on the difference between efficiency and equity. These notes came about for two reasons: 1) I've had fits and starts over the years of writing a Principles-level economics book from an environmental/sustainability perspective, and in thinking about this, 2) I've realized that by presenting markets as 'efficient' in the standard Principles-level treatment, we may be missing the mark.

In deciding how best to allocate our scarce resources, there is thought to be a trade-off between equity and efficiency.  As Greg Mankiw puts it in his Principles of Microeconomics textbook:

Another trade-off society faces is between efficiency and equality.  Efficiency means that society is getting the maximum benefits from its scarce resources.  Equality means that those benefits are distributed uniformly among society's members...When government policies are designed, these two goals often conflict...In other words, when the government tries to cut the economic pie into more equal slices, the pie gets smaller.

I agree with Mankiw, to an extent; given the social goal of maximizing the size of the economic pie, a policy that aims at equity creates incentives inconsistent with the goal.  But what is missing from this discussion and what is implicit in Mankiw's definition of efficiency is that everyone is OK with the goal of maximizing the size of the economic pie.  Efficiency does not imply the goal of maximizing total economic productivity; to the contrary, maximizing total economic productivity is the subjective goal to which the objective definition of efficiency is being applied. 

This distinction is important because it is often assumed that there is a one-to-one correspondence between total economic productivity and total societal well-being or happiness.  Therefore to improve societal well-being, concerns of equity must be thrown away since total economic productivity can only be maximized through efficiency.  Hence the trade-off.  But what if there is not a one-to-one correspondence between happiness and total economic productivity?  Does that render the concept of efficiency--and consequently economics--useless?  

Quite the contrary and this is where some of the critics of economics overreact when they see Mankiw-like definitions of efficiency.  Efficiency is usually defined with the underlying social goal of maximizing total productivity.  But what if society values equality?  That is, what if total productivity is only part of what determines well-being and people actually care about the distribution of resources--at least minimally. 

The trade-off that is typically discussed between equity and efficiency is really a trade-off between equity and total economic productivity.  The logical problem comes in assuming that total economic productivity and total well-being are the same.  But what if part of our societal goal is some concept of equity?  Can we still achieve it efficiently?  According to our definition of efficiency-- achieving a defined social goal using the least amount of society's resources as possible—yes, we can still achieve any societal goal efficiently if we allocate resources to align with the stated goal.  Efficiency doesn't have to be predicated on the particular goal of maximizing total economic productivity.  The social goal may be total economic productivity, or it may be any one of a million other distributions of social well-being.  No matter the goal, economics provides a valuable set of tools for understanding how to achieve those goals using the least amount of society's resources--and thereby freeing those resources for other uses (or nonuses).

Daily Demand and Supply: Bill Nye Explains the Law of Demand...and Carbon Pricing, MFers.

Warning:  NSFW (Unless you work at a University and part of your job is to watch stuff like this and post it on a blog).

The highlights of this have been around all week, but most of the clips are just Bill Nye the Science Guy saying "motherf***ers.   But this segment on Last Week Tonight really does a nice job of simply explaining how Carbon Pricing works.  If you don't want to watch the whole thing, just fastforward to the 9:27 mark or so, and sit back and enjoy.

Bill Nye explains the Law of Demand from 10:21 to 10:37.

Now if I can just figure out how to use this in class without trigger warnings.

It's time to stop wondering when the renewable switch will occur and start asking how do we manage the transition

CNN:

The renewable energy sector is projected to generate more electricity than coal during the month of April, according to a recent report published by the Institute for Energy Economics and Financial Analysis. That's never happened before.

Technological change, government policies, and changing consumer preferences have all but guaranteed the switch from fossil fuels to renewables.  To me, the economics of the switch are less interesting (people prefer cheaper techonologies...duh!), than the question of how we manage the economic transition. How do we retrain the workforce in communities reliant on traditional forms of energy production?  How do we transition the infrastructure in those communities?  How do we tackle tough questions like whether coal reliant communities should be rejuvenated?  How do we manage the inevitable pressures of additional income inequities due to the transition?

There are a lot of questions economists need to think about.

When the renewable switch will occur isn't one of them.

 

I'm certifiable

Fish are friends?

One thing world leaders agree on? Fish are the lowest priority on the United Nations Sustainability Goals.

 

 

Is Climate Change Fair?

Just got around to reading the Hsiang et al piece in Science on the inequitable economics impacts of climate change.  Here's the abstract:

Estimates of climate change damage are central to the design of climate policies. Here, we develop a flexible architecture for computing damages that integrates climate science, econometric analyses, and process models. We use this approach to construct spatially explicit, probabilistic, and empirically derived estimates of economic damage in the United States from climate change. The combined value of market and nonmarket damage across analyzed sectors—agriculture, crime, coastal storms, energy, human mortality, and labor—increases quadratically in global mean temperature, costing roughly 1.2% of gross domestic product per +1°C on average. Importantly, risk is distributed unequally across locations, generating a large transfer of value northward and westward that increases economic inequality. By the late 21st century, the poorest third of counties are projected to experience damages between 2 and 20% of county income (90% chance) under business-as-usual emissions (Representative Concentration Pathway 8.5).

Here's a pretty picture (with a really long caption) that sums things up:

Caption: County-level median values for average 2080 to 2099 RCP8.5 impacts. Impacts are changes relative to counterfactual “no additional climate change” trajectories. Color indicates magnitude of impact in median projection; outline color indicates level of agreement across projections (thin white outline, inner 66% of projections disagree in sign; no outline, ≥83% of projections agree in sign; black outline, ≥95% agree in sign; thick white outline, state borders; maps without outlines shown in fig. S2). Negative damages indicate economic gains. (A) Percent change in yields, area-weighted average for maize, wheat, soybeans, and cotton. (B) Change in all-cause mortality rates, across all age groups. (C) Change in electricity demand. (D) Change in labor supply of full-time-equivalent workers for low-risk jobs where workers are minimally exposed to outdoor temperature. (E) Same as (D), except for high-risk jobs where workers are heavily exposed to outdoor temperatures. (F) Change in damages from coastal storms. (G) Change in property-crime rates. (H) Change in violent-crime rates. (I) Median total direct economic damage across all sectors [(A) to (H)].

Env-Econ Summary: We're all screwed, just some of us are screwed more than others.   

Remove climate + sustainability

a former #EPA colleague (he's there, I'm not) just said his office was told to remove ALL mentions of climate + sustainability from website

— Kaitlin StackWhitney (@KStackWhitney) January 25, 2017

Always look on the bright side of life...

Quite possibly the most depressing introduction to a pseudo-academic workshop I have seen: 

How can we best live at this moment of severe environmental degradation? How can we work and teach on behalf of environmental wellbeing without becoming overwhelmed, embittered, or burned out? Is there a way to thrive in our environmental commitments?

If that gets you excited, then sign up for the Contemplative Environmental Workshop!

This workshop brings together professors and activists to develop more skillful ways of confronting environmental challenges.  Specifically, it explores the role of contemplative practice in our pedagogical and activist efforts.  Through daily meditation, journal writing, nature walks, and other reflective exercises as well as scholarly discussion, we will probe the depths of the environmental crisis and develop resources to work and teach on behalf of global sustainability.  

Environmental issues are not simply political, technological, or economic dilemmas but also existential challenges that require us to reflect upon the meaning of our individual and collective lives.  Furthermore, the scale and pace of environmental degradation call on us to enhance our skills as educators, activists, and ordinary citizens like never before.  This workshop offers the opportunity to deepen such efforts by facilitating meaningful dialogue between activists and professors, probing the interface between our personal and professional lives, and introducing contemplative practices tailored specifically for use in the classroom and in political organizing.  

Part seminar and part retreat, the workshop provides the chance to step back from our frenetic lives and, in the midst of stunning beauty and a supportive community, integrate our deepest spiritual yearnings with our professional and personal commitments to protect the earth.  

Quote of the Day: On humility

I must admit that I would like to see superstar academic economists embrace a more humble outlook when communicating with the public.

Humble economist Matt Kahn in "A Review of The Age of Sustainable Development by Jeffrey Sachs." Journal of Economic Literature, 53(3): 654-66.